Public Appraisal Price of 14.8 Billion Won, but Comprehensive Real Estate Tax of 0 Won?...Gyeonggi Province Makes Recommendation to Government

[Suwon Ilbo=Reporter Park No-hun] Gyeonggi Province has made a recommendation to the government that the comprehensive real estate tax exemption for residential rental business operators is encouraging unearned income and causing unfair taxation, and that the standard price for exemption from comprehensive real estate tax on rental housing should be improved to reflect the housing public appraisal price as of the tax assessment date (June 1) each year.

The province announced on the 6th that it submitted the 'Proposal for Improving Comprehensive Real Estate Tax Exemption for Residential Rental Business Operators' to the Ministry of Strategy and Finance on the 5th.

Gyeonggi Province's comprehensive real estate tax improvement plan involves strengthening the exemption requirements by amending the Comprehensive Real Estate Tax Enforcement Decree to change the standard price of rental housing from its current application to the housing public appraisal price as of the tax assessment date (June 1) each year, which is one of several conditions for exempting residential rental business operators from comprehensive real estate tax.

Under the current Comprehensive Real Estate Tax law, if the aggregate public appraisal price of housing owned as of the tax assessment date (June 1) each year exceeds a certain amount (600 million won or 900 million won), the comprehensive real estate tax must be paid.

However, rental business operators do not have to pay comprehensive real estate tax even if they own multiple rental properties whose public appraisal price exceeds 600 million won as of the tax assessment date.

This follows the current Comprehensive Real Estate Tax law, which sets the standard for rental housing based on the housing public appraisal price either at the time of commencement of rental or in the year when the first exemption request was made.

Therefore, in the case of rental housing business operators, a phenomenon occurs where comprehensive real estate tax is completely exempted even if the current public appraisal price of the rental property exceeds 600 million won.

For example, person A, who owns 26 rental properties nationwide, had 19 properties with a housing public appraisal price exceeding 600 million won as of 2020.

However, under the current system, the public appraisal price of the 19 properties as of the rental commencement date between 2016 and 2018 was 400 to 600 million won each, so person A can receive a complete exemption from 267 million won in comprehensive real estate tax.

Although the value of the 19 properties increased by 60.8% from 9.2 billion won at the time of rental commencement to 14.8 billion won in 2020, the tax burden did not increase at all.

While the government has recently been strengthening rental housing requirements and reducing tax benefits, if institutional improvements are not supported, existing residential rental business operators will continue to avoid paying comprehensive real estate tax.

Taking into account the reality that the number of comprehensive real estate tax payers is increasing each year as housing public appraisal prices rise due to the government's realistic assessment of real estate public prices and rising actual transaction prices, the province explained the background for pursuing institutional improvement, stating that excessive benefits for such residential rental business operators do not align with the purpose of comprehensive real estate tax.

Accordingly, the province recommended to the government that the Comprehensive Real Estate Tax Enforcement Decree be amended to change the exemption standard for residential rental business operators to the current public appraisal price as of the tax assessment date and to impose comprehensive real estate tax on properties exceeding a certain amount (600 million won).

The province expects that the institutional improvement will help achieve tax burden equity between rental business operators and ordinary taxpayers and contribute to the development of local finances.

Related to this, Governor Lee Jae-myung of Gyeonggi Province posted on his social media on the 3rd of last month, stating "Only 1.3% of the population pays comprehensive real estate tax in our country, and within that, 64.9% of the payment amount is only 1 million won or less. Since 82.4% of the total tax assessed amount corresponds to multi-property owners with two or more properties, efforts and achievements to reduce the tax burden on single-property owner-occupants are clearly evident," and "The problem is that most of the 1.6 million registered rental properties are receiving tax exemption privileges. This is because the government, in accordance with measures to activate rental property registration, granted benefits such as comprehensive real estate tax exemption for non-resident speculative properties."

Governor Lee went on to say, "As I have repeatedly stated, the only solution to market stabilization is to prevent making money from real estate," emphasizing "We must protect the tax exemption for owner-occupant single properties and impose strong taxation on multi-properties that reap excessive profits through speculation."